What a fantastic six months it’s been for Ross Stores. Shares of the company have skyrocketed 44.1%, hitting $193.13. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy ROST? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does ROST Stock Spark Debate?
Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ:ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.
Two Things to Like:
1. Store Growth Signals an Offensive Strategy
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Ross Stores operated 2,273 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4% annual growth, much faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Ross Stores’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.4% per year.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Ross Stores grew its sales at a tepid 6% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Ross Stores.
Final Judgment
Ross Stores has huge potential even though it has some open questions, and after the recent surge, the stock trades at 27.5× forward P/E (or $193.13 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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